VMware Surges In Q3 On Strong License Revenue Growth, Outlook

VMware delivered a wake-up call on Monday to critics who feel its best days are behind it, delivering fiscal third-quarter results that handily beat Wall Street's expectations.

For the quarter ended Sept. 30, VMware racked up a profit of $261 million, or 60 cents per share, compared to $157 million and 36 cents per share during last year's third quarter. Excluding items, VMware earned 84 cents per share, up from 70 cents per share last year. Wall Street analysts were expecting 82 cents per share.

VMware's software licensing revenue grew 15 percent during the quarter to $564 million, and the vendor is expecting additional license revenue growth of 12 percent to 16 percent for its current quarter.

Enterprise licensing agreements accounted for 33 percent of bookings, down from 37 percent last quarter, which was a record high for VMware.

VMware's End-User Computing (EUC) unit saw a slight drop in revenue after growing in the mid-teens percentage-wise in the previous two quarters. That was due to a lack of larger desktop virtualization deals in the Americas, which is the biggest part of VMware's business in terms of bookings, Carl Eschenbach, co-president and COO, said during the earnings call.

However, the End-User Computing sales pipeline for the current quarter "looks extremely strong" and VMware is expecting to "bounce back with another solid quarter," Eschenbach said on the call.

End-user computing, which includes Horizon View and other software that connects mobile device users to back-end enterprise apps, is a key business for VMware as it looks to re-create its wild success with server virtualization.

VMware earlier this month acquired Desktone, a hosted virtual desktop vendor that is also one of its longtime partners. In a Q&A during the call, VMware CEO Pat Gelsinger, was asked if this means VMware is going to be providing DaaS directly to customers.

"Desktone has a very successful model working with service providers," Gelsinger responded. "We expect this will continue if not accelerate."

Gelsinger seemed enthused by the market's response to VMware's NSX virtualization technology, which it unveiled at VMworld in September and is based on assets from its $1.2 billion acquisition of Nicira. "It really is a software-defined-data center technology that provides customers choices," he said of NSX.

For its current fourth quarter, VMware is expecting overall revenue of between $1.45 billion and $1.48 billion.

But, VMware is also expecting to see its licensing business grow by 15 percent in 2014 due to increased demand it's expecting for its flagship vCloud Suite.

Investors liked the sound of this, sending VMware shares up more than 11 percent to $91.90 in Monday after-hours trading. VMware shares are now down just over 4 percent for 2013, after being down more than 30 percent in early July.

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